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Refinance or Second Mortgage?

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One of the most common questions I get from consumer looking for cash is whether they need a refinance loan or to take out a second mortgage.  Every situation is different, so there is not a simple “canned answer” when it comes to cash refinancing.  In order to offer educated advice on a first or second loan I need to understand the big picture.  In an effort to responsibly address this financing scenario, I need answers to the following questions below:

What’s your loan to value (LTV)? We need to determine how much equity you have because you may not be eligible for a credit line or second mortgage.

How is your credit? Whether your fico score is 580, 680 or 780 this will enable me to understand further what cash out options are available to you. Cash out refinancing guidelines range from 75 to 90% loan to value depending upon what type of borrower you are.  It also matters how big the “mortgage loan” is that you plan to take out.  Some lenders will allow good credit borrowers to go to 90% LTV on a credit line or fixed home equity loan if it is only for $35,000.

Do you have pre-payment penalty on your first mortgage?  Sometimes borrowers will have pre-payment penalties that equate to thousands of dollars. When a homeowner has a large pre-pay on their existing mortgage, it can make a second mortgage option more attractive.

What are you doing with money?  It is important to know why you are considering a cash back refinance. For example if you are consolidating debt then we would always recommend a fixed rate loan that featured simple interest.  Whereas, if you are remodeling your home and you are not sure how much cash you will be borrowing or when you will need the money, then a home equity line of credit may be the perfect solution.

Do you have a second mortgage or equity loan already? If you already have a “2nd mortgage”, we will have to refinance it and roll the balance into the new loan.

Interest rates remain at record lows and the guidelines for cash out financing appear to be expanding a bit in 2013, but it is important that you discuss you goals and situation with an experienced loan officer so you can make the best financial decision. If property values rise like they are predicted, you can expect to see more home equity products that provide cash back for homeowners.

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2 Comments

1

I think that there will definitely be a refinance boom with rates so low. Those home owners that did not fall victim to buying too much house or taking out the wrong kind of loan can definitely reap the rewards that the low interest rates bring. Especially with the government refi programs available, anyone with decent credit can take advantage.

2

I have filled out the loan application with several mortgage lenders. My credit scores are good but I’ve have had trouble finding a lender to consolidate my 1st and 2nd liens.

I am looking for a refinace on my 1st at 5.75% while paing all my debts and 2nd loan that has a 15.5% interest rate.
Please have someone call me asap

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